“The greatest gift that you can give to others is the gift of unconditional love and acceptance” – Brian Tracy
From my household to yours, I want to wish you a very happy holiday season as well as a joyous and prosperous New Near! Thank you for you continued friendship and presence in my life.
Swimming With The Sharks
I recently attended a high level real estate investing conference and not only did I learn more about the mechanics of investing in income producing properties, but I also gained some entrepreneurial insight from Daymond John from the The Shark Tank (I’ll share more about my interaction with Daymond in my next newsletter) as well as a inspirational message from former NFL Player and Motivational Speaker Trent Shelton.
Trent spoke about the Championship Mindset and How to Be the Greatest Version of Yourself. My key takeaways from Trent’s message were:
- Commitment – “Staying loyal to what you said you were going to do long after the mood you said it in has left”
- Discipline – “Become legendary at saying no to the things that don’t get you your yes”
- Consistency – “World class success doesn’t always depend on world class talent, but it does always depend on work class consistency”
- Faith – “Believing a door is going to open for your life that doesn’t even exist yet”
- Heart – “Suffer now and spend the rest of your life as a champion”
What Federal Reserve Tapering Means For Real Estate
In this video, the Fed’s tapering of their financial asset purchases and what it means for real estate and interest rates is discussed.
Should You Consider Passively Investing In Multifamily Apartments?
When debating life decisions, what is a safe bet? Many would argue that a career as a doctor is a safe choice as people will always get sick. The same goes for real estate investing: people will always need an affordable place to live.
Investing in a syndication run by a sponsor group is a way for individuals to invest passively in multifamily apartments. Today, I will share with you five reasons you might consider investing in multifamily apartments, as well as a few potential drawbacks.
Reasons To Consider Investing
- No Active Work
Passively investing in a multifamily apartment has few requirements; that means no active work, emergencies, or vacant units to deal with. It does not take nearly as much effort as performing a traditional fix-and-flip or hosting short-term rentals. All it takes is choosing a sponsor group, selecting a property they are buying, carefully reviewing the legal documents and agreements with final signatures, and sending a wire transfer. That’s it; you’re a passive investor.
- Tangible Assets
A significant benefit of passively investing in multifamily apartments is that you can own or share ownership of a tangible asset, in this case a multifamily apartment building. Unlike Bitcoin, stocks or bonds, which represent a value, your shared ownership in the building is the value. It won’t simply disappear if the market takes a turn.
- Generate Passive Income With Low Risk
One of the fastest paths to retirement is building a steady stream of passive income sources. That way, when it comes time to retire, you aren’t solely relying on savings; instead, you have additional income coming in with little effort from you.
Real estate has proven to be a consistent return on investment over time. Multifamily buildings generally entail less risk than single-family units: since you’re investing in dozens, if not hundreds, of apartments, your risk is mitigated by spreading it out.
- Tax Advantages
The tax code favors real estate investments since they stimulate the economy and create jobs. As a result, there are tax advantages to investing. A few of these include utilizing a cost segregation study to accelerate depreciation. There can be additional advantages to applying this study, allowing maximum overall returns. Compared to traditional investing, you will likely get to keep more of what you earn.
- Community Improvement
Many of these sponsor groups turn properties around through renovations; this can improve the community and put families in a position to thrive. The properties’ values can also increase based on an improved tenant base and an overall increase in income. Over time, this leads to job creation, a reduction of crime, and can help improve the quality of life for all tenants.
All these factors are significant benefits of passively investing in multifamily apartments. However, before making the decision to invest with a sponsorship group, you should also consider the following potential drawbacks:
- Your funds are illiquid, meaning you cannot access them until the end of the hold time (although there are some exceptions).
- You must carefully vet the sponsor group. This requires time and research on your part, but it could protect you from investing with a group that has a bad reputation or does not deliver on its promises.
- There is always a risk that the business plan will not be executed according to the pro forma by the sponsorship group. This means your returns could be less than presented to you. Just because you sign a private placement memorandum (PPM) outlining the details of the investment does not guarantee the returns proposed.
I suggest you start by outlining your investment goals and the timeline you envision to achieve these goals. Choose a handful of sponsorship groups you are interested in and make an introduction call. Ask informed questions, and once you feel comfortable, you may be ready to move forward with an investment. I recommend starting with the lowest investment to test the waters, and always diversify so you’re not risking everything with one sponsorship group. But of course, I am not a CPA or real estate attorney and you should always consult both these experts before making any long-term decisions.
Whether you are new to real estate investing or a seasoned pro, multifamily apartment investing can provide endless opportunities as long as you do your research. Not only will you benefit from generating passive income while taking advantage of some outstanding tax deductions, but in an indirect way, you will assist in improving communities for families to thrive. It’s a win-win.
I am now an ADU Specialist
I recently received my ADU Specialist Credential and am assisting homeowners, investors and developers understand site eligibility, local regulations, development process/costs and the return on investment.
Accessory Dwelling Units (ADU) are also known as secondary units, in-law units, granny flats, backyard cottages, etc. No matter what you call them, ADUs are an innovative, affordable, effective option for adding much needed housing in California. They are self contained residential units on the same property as a single-family home or a multi-family building. ADUs must have a kitchen (or efficiency kitchen), bathroom, place to sleep and a separate entrance from the main property. You can use an ADU to house family or friends, or lease to a rent-paying tenant. New policies are making ADUs more affordable to build, in part by limiting development impact fees and relaxing zoning requirements. By design, ADUs are more affordable and can provide additional income to homeowners and often the rent generated from the ADU can pay for the entire project in a matter of years.
If you or someone you know might be interested in learning more how to help solve the current affordable housing crisis while also creating some additional and passive income, please contact me.